International Diversification.

Reduce Risk Through International Diversification

Diversification: The Only Free Lunch

• Companies domiciled outside of the United States makeup approximately 50% of the total value of the global stock market.
• Investing around the world reduces the risk that a prolonged recession or economic downturn in any one country will drastically impact your portfolio.
• We invest in more than 40 countries around the world, including over 20 emerging markets.

Is Your Portfolio Trapped at Home?

Note: Not all clients or portfolios will invest in all countries. The specific countries invested in are subject to change and based on the unique circumstances of each client and portfolio.

In the world of investing, we rarely encounter a decision that isn’t a trade off between risk and return.

However, most investors know that diversification is a clear exception to this rule and that employing it to your advantage allows you to reduce risk without sacrificing expected returns.

In practice, this means that smart investors utilize mutual funds or ETFs to ensure that they hold a large enough portfolio of stocks to reduce what is known as unsystematic, or company-specific, risk.

Unfortunately, choosing a couple of mutual funds is typically where diversification begins and ends for most investors. The result is that most portfolios lack two other critical forms of diversification:

1. Investing in stocks that exhibit unique risk characteristics (this is known as risk factor diversification)
2. Investing in stocks outside of the United States (international diversification)

In much the same way that owning a single stock is far riskier than owning a large basket, owning stocks in a single country is far riskier than owning stocks in companies all across the globe.

Most investor portfolios, however, display what is known as a “home bias.” This means that they contain little or no allocation to international stocks.

Our Approach

Our approach employs extensive international diversification in both developed and emerging international markets, as well as the United States. This helps to minimize local country risk and allows an investor to access returns in diverse markets all around the world.

In fact, a typical portfolio that we build includes investments in over 40 countries:

Note: Not all clients or portfolios will invest in all countries. The specific countries invested in are subject to change and based on the unique circumstances of each client and portfolio.

Don’t Take Our Word For It

Selected Supporting Research

The following is a selected list of research papers, articles, and other sources that form the foundation of our approach to investment management and financial planning. You can access our full research library by clicking here.

Philips, CFA, Christopher B., Francis M. Kinniry Jr., CFA, and Scott J. Donaldson, CFA, CFP. “The Role of Home Bias in Global Asset Allocation Decisions.” June 2012. (Download)

Philips, CFA, Christopher B., “Considerations for Investing in Non-U.S. Equities.” Vanguard Research, March 2012. (Download)

Asness, Clifford S., Roni Israelov, and John M. Liew. “International Diversification Works (Eventually).” Financial Analysts Journal, May/June 2011. (Download)